Kim Dotcom is proposing free broadband to all New Zealanders as he tries to resurrect the ill-fated Pacific Fibre cable connecting New Zealand to the United States.

Dotcom last night revealed his ambitious plans to build the $400m cable - which would double New Zealand's bandwidth - set up his new Me.ga company, creating jobs and a data centre to service the rest of the world.

He would provide New Zealand internet service providers such as Telecom and Vodafone with free access for individual customers and charge a fee to business and central government.

Kiwis would still be charged a fee by the internet companies, but it would be as low as one-fifth of current bandwidth plans and three to five times faster with no transfer limits.

The $400m would be partly funded by Me.ga, raising additional funds from investors.

He added he could fund the project by suing Hollywood studios and the US Government for their "unlawful and political destruction of my business". Pacific Fibre, the company headed by Trade Me founder Sam Morgan, ceased operations in August after failing to raise enough capital for the project.

Dotcom said Pacific Fibre was important for the future of New Zealand to ensure its competitiveness in the online world.

"You have clean and cheap energy here. Power is becoming the biggest cost factor for data centres around the world. With its own cable, cheap power and connectivity New Zealand could attract foreign internet business.

"Unfortunately the current Government wants to invest into more tarmac roads. In 10-15 years most people will work and shop from home. You don't need tarmac, you need fibre!"

Me.ga is the follow-up to Megaupload, which was shut down in January this year when police swooped on the Dotcoms' Coatesville mansion outside Auckland to seize computers and other evidence.

Dotcom, a German national who holds New Zealand residency, faces an extradition hearing in March even though a New Zealand court ruled that the January raid and seizure were unlawful, while the nation's spy agency was found to have illegally spied on Dotcom.

Telecommunications Users Association of New Zealand Paul Brislen said the proposal would be a huge boost for New Zealand.

"If anyone can put together a deal like this, then it would be Kim Dotcom."

Brislen said Google executives had expressed an interest in setting up business in New Zealand.

Labour's Communications and IT spokesperson Clare Curran said Dotcom's proposal to back a second cable required more analysis, but was worth consideration.

"The sentiment is right. Kiwi businesses, particularly in the technology sector, have been calling for a second cable for some time now. Their concerns need to be taken seriously."

She said the Government's ultrafast broadband scheme was flawed because it ignored the need for a second fibre cable.

"Providing affordable international broadband will see usage increase substantially, with companies using the technology to improve their businesses and increase exports.

"As Kim Dotcom has pointed out the Government is quite happy to invest billions in highways of dubious significance while at the same time neglecting the international fibre highway connections that will help our economy flourish," Curran said.